GBP/JPY climbs further beyond mid-208.00s after BoJ’s widely expected 25 bps rate hike

The GBP/JPY pair attracts some bearish buyers during the Asian session on Friday and halts the previous day’s recent decline from levels just above the 209.00 mark, or a new high since August 2008. The immediate reaction holds on to strong intraday gains following the long-awaited Bank of Japan decision and is currently trading around the 208.70-208.75 area, up 0.25% for the day.

As widely expected, the Bank of Japan decided to raise interest rates to 0.75%, or the highest level in three decades, amid continued inflation in Japan. In fact, data released earlier today showed that Japan’s national consumer price index (CPI) remains well above the central bank’s target of 2%. However, the Japanese yen is struggling to attract any meaningful buyers as bulls choose to wait for further signals on the Bank of Japan’s appetite for further policy tightening into 2026. Hence, the focus remains on BOJ Governor Kazuo Ueda’s comments during the post-meeting press conference, which will play a major role in influencing the JPY price dynamics and provide some significant momentum for GBP/JPY.

Heading into a major central bank risk event, the generally positive risk tone is seen as another factor undermining the safe-haven Japanese yen. On the other hand, the British pound continues to receive support from the Bank of England’s hawkish interest rate cut on Thursday. As expected, the Bank of England’s Monetary Policy Committee voted 5 to 4 in favor of a 25 basis point cut to 3.75%. However, the close split in votes revealed differences within the committee, especially after this week’s inflation surprise. This in turn has forced investors to reduce their expectations for further aggressive easing next year, which is seen as a tailwind for the British pound and GBP/JPY.

However, the Bank of England is still expected to cut borrowing costs next year. This represents a significant difference from the Bank of Japan’s hawkish outlook. This would lead to a further narrowing of the interest rate differential between Japan and other major economies, which would benefit the low-yielding Japanese yen and limit gains in the GBP/JPY pair. However, spot prices are still on track to finish positive for the sixth week in a row, although the fundamental backdrop calls for some caution before preparing for further rise.